Generally, we need different kinds of equipment machinery, such as turbines, alternators, and boilers for electricity generation in power stations. Consequently, the operation and arrangement of these devices incur additional costs. These costs are passed on to customers through a fixed charge included in their bills, with the tariff rate primarily determined by the cost of electricity generation. Once electricity is produced, the transmission process requires infrastructure like transmission lines, poles, insulators, and towers. The tariff charge also covers the construction costs associated with transmitting electrical energy. In the event of transmission line errors causing equipment damage, the repair expenses are borne by customers through the tariff charges. This article provides an overview of electric tariffs, discussing their types, advantages, and disadvantages.
What is Electric Traffic?
The electricity tariff can be defined as the rate at which the electrical energy is sold to a customer. But electric tariff must contain the whole producing cost & supplying electrical energy with reasonable cost. Electric tariffs cannot be similar for all types of customers due to the electrical energy production cost mainly depends on the magnitude of energy used by the customer and also his load conditions. The electricity tariffs should include the below factors. At the power station, it must recover the production cost of electricity, investment price within electrical energy transmission & distribution, operation cost, and maintenance of power system elements like; bills, equipment, and meters and it must generate a return on the investment.
Electric Tariff
Electric Tariff Working Principle
The actual electric tariff that the consumer pays mainly depends on the electricity consumption so, the consumer bill changes based on their requirements. So the tariff is set by considering various consumers like commercial, industrial, domestic, etc. Industrial customers pay more tariffs since they utilize more electricity for a long time as compared to domestic consumers. The electricity tariff mainly depends on different factors like; load type, time upon which load is necessary, the P.F. of the load, the amount of electric energy utilized, etc. The consumer’s total bill includes three parts; fixed charge ‘D’, semi-fixed charge ‘Ax’ & running charge.
C = Ax + By + D
‘C’ is the total charge for a month.
‘x’ is the highest demand throughout the period.
‘y’ is the whole consumed energy throughout the period.
‘A’ is the cost for each kVa or kW of highest demand.
‘B’ is the cost for each kWh of consumed energy.
‘D’ is the fixed charge throughout every billing period.
Types of Electric Tariffs
Electric tariffs are of different types, so some of them are discussed below.
Simple Tariff
This tariff is also known as a uniform tariff. In this type of tariff, the rate of each unit is fixed & the consumer will pay the charge according to the unit rate. The rate for each unit of energy does not depend on the amount of energy utilized by a customer. The price for each unit of electric energy is constant and the energy consumed by the customer is recorded simply by the energy meters.
For instance, if we pay two rupees for every unit & if we consume fifteen units within one month then we have to pay thirty rupees as a tariff. The main drawback of this tariff is that the same charge is paid by the big and also small customers. So, the charge does not depend on the load but it depends mainly on the units. This tariff does not support the consumer to utilize more electric energy. The simple tariff is normally applied to tube wells which are utilized for irrigation purposes.
Flat Rate Tariff
When various types of customers are charged at various uniform for each unit rates then called a flat rate tariff, the consumers in this kind of tariff are grouped simply into special classes & consumers in every class can be charged at a special uniform rate. According to the customers, the different rates are decided for their loads & load factors. A flat rate tariff is normally applied to domestic customers.
Block Rate Tariff
In block rate tariff type, the consumed energy of the first block is charged at a specified rate & the next energy blocks are charged simply at gradually decreased rates. In every bloc, the rate for each unit can be fixed. For instance, the first 50 units in the first block can be charged at 3 rupees for each unit; the next 30 units in the second block will be charged at 2.50 rupees for each unit & the next 30 units in the third block will be charged at 2 rupees for each unit. This tariff is applied generally to small commercial and residential consumers.
Two-part Tariff
When the electricity rate is charged based on the highest consumer demand as well as consumed units is known as a two-part tariff. In this type of electric tariff, the whole charge to be made by the consumer can be split into two components; fixed & running charges. The fixed charges mainly depend on the highest consumer demand whereas the running charges mainly depend on the units utilized by the consumer.
Therefore, the customer can be charged a particular amount for each kW of highest demand and a particular amount for each kWh of energy used. This kind of electric tariff applies mostly to industrial customers who have significantly highest demand.
Maximum Demand Tariff
Maximum demand tariff is the same as a two-part tariff but the main difference is that the highest demand can be measured by fixing the highest demand meter in the location of the consumer. The energy used in this type of tariff can be charged based on the highest demand so the energy used by consumers is known as maximum demand. This demand can be measured through a maximum demand meter which removes any conflict between the supplier as well as the consumer. This type of tariff is applied to big industrial consumers.
Power Factor Tariff
The tariff where the power factor of the customer load is taken into consideration is called the power factor tariff. Generally, the power factor is a significant factor within the power system. So it must be high for optimal operation whereas a low power factor causes imbalance & more losses in the system. Thus the consumers will be charged more which has less power factor loads. This tariff can be divided into different types like KVA max demand Tariff, KW Tariff & KVAR Tariff, and sliding scale Tariff.
Three-part Tariff
Whenever the whole charge to be made from the user is divided into three parts; fixed charge, running charge & semi-fixed charge is called a three-part tariff.
The total charge = Rs (a + b * kW + c * kWh)
Where, ‘a’ is a fixed charge made in every billing stage.
‘b’ is the charge for each kW of the highest demand,
‘c’ is the charge for each kWh of consumed energy.
The three-part tariff can be by adding a fixed charge to the two-part tariff. This kind of tariff is normally applied to big consumers.
Electric Tariff Example:
A consumer has 200 kW of the highest demand at 25% load factor (LF). If the electric tariff is 115 rupees per kW of highest demand plus 15p per kWh, measure the overall price per kWh.
Consumed Units per annum = Maximum demand * Load factor * Hours within a year
⇒ Units Consumed per annum = 200 × .25 × 8760 = 4380000 kWh
Annual energy charges = (Consumed Units/annum) × (Rs./kWh )
⇒ Annual energy charges = 4380000 × .15 = Rs.65700
Total annual charges = Maximum Annual demand charges + Annual energy charges
⇒ Total annual charges = (200 × 115) + 65700 = Rs. 88700
So, Overall cost per kWh = Rs. 88700/4380000 =
= Re. 0. 020 = 02.0p.
Electric Tariff Characteristics
The characteristics of electric tariffs are discussed below.
- Storing huge amounts of electricity is not possible so, the tariff should ensure correct returns from every consumer.
- It must be fair to satisfy the various kinds of consumers and it must be simply designed so that a normal consumer can understand it very easily.
- Electrical energy should be available when required thus electric tariffs must earn enough money to reach the instant demand.
- The electric tariff must be identical over a huge population.
- The different consumers are pushed to make efficient utilization of electricity.
- Electric tariffs must offer an incentive for utilizing electricity in off-peak hours.
- For consumers, tariffs must have a condition of penalty charging at the less power factor.
- A big consumer must be charged at a lower rate as compared to a smaller consumer due to the increase in the electricity use reduces the price of generation for each unit.
Advantages and Disadvantages
The advantages of electric tariffs based on different types are discussed below.
- The cost of a simple tariff type does not change when the number of units consumed increases or decreases.
- The electricity consumption at the terminals of consumers is recorded through an energy meter.
- The simple tariff is understood very easily by the customer.
- Flat rate type tariff is very simple within calculations
- The consumer obtains an incentive to use more electrical energy.
- A flat rate type tariff increases the system’s load factor, so the generation cost can be decreased.
- The two-part tariff improves the fixed charges which mainly depend on the highest consumer demand.
- This tariff is independent of the consumed units.
- The highest demand is assessed simply on the base of the ratable value.
- This is applied mostly to big consumers.
The disadvantages of electric tariffs based on different types are discussed below.
- In simple tariff, every customer has to pay regularly for the fixed charges regardless of variation within the load.
- The delivered unit cost is the maximum.
- The simple tariff does not promote the utilization of electricity
- Flat rate tariffs need separate meters for power load, lighting load, and many more.
- The Flat rate tariff application is costly & also difficult.
- The Block rate Tariff lacks a measure of customer demand.
- It is being used for the majority of small commercial & residential consumers.
- In a two-part Tariff, there is an error always while assessing the highest demand of the customer.
- A maximum demand tariff is not appropriate for a small customer.
What is meant by a Tariff on Electricity?
Tariffs in electricity can be defined as the rate at which electrical energy is supplied to a consumer. The price of electricity production mainly depends on the magnitude of electricity consumed by a load.
What is the Power Factor of Tariff?
The tariff where the consumer’s load power factor is taken into consideration is called a power factor tariff.
How Does a Tariff Work?
A tariff works based on how you are charged for your electricity usage. The cost of electricity generation mainly depends on different factors like load factor, connected load, demand factor, maximum load, capacity of plant, diversity factor, etc.
What are the benefits of Tariffs?
The tariffs make the electricity grid of India sustainable & more efficient. They encourage the consumers to utilize low electric energy in peak times so that it helps in reducing grid demand.
Thus, this is brief information on electric tariffs or electricity pricing, types, examples, advantages, and disadvantages. The charge at which point electrical energy is supplied to a customer is called a tariff. So the price of generating electricity mainly depends on the magnitude of consumed electricity by load. The domestic consumer pays Rs 4.50 for each unit equal to 400 units for 2 months. The electric tariff is Rs 6.50 for each unit from 401 to 500 units & 8 rupees for every unit from above 500 to below 600 units. Consumers pay 9 rupees for each unit above 600 units & up to 800. Here is a question for you; simple tariff is also known as?